2 Stock Ideas for the Next 12 months

Three things I’m thinking about today…

1. Keep your eye on Zip Co (ZIP) from here…

This is a digital payment and finance company.

This had a huge rally yesterday.

At one point it was up 22% before it closed the day lower for a 16% gain for the session. That’s a big move for a multibillion company – especially in this market.

There’s an interesting background to this one.

In 2024 Zip had a ripping rally, going from about 50 cents per share to over $3. It went almost back to a $1 by March.

There was a panicky drop earlier in the year when management flagged a slight miss on some numbers.

It wiped off a billion dollars in market cap. That looks excessively pessimistic now.

Zip’s third quarter results came out yesterday and the market liked the numbers.

We can see why.

Zip upgraded their full year guidance, posted record cash earnings and said they’re on track for their 2 year targets.

This has every chance of continuing to rally. I’ve seen, over the years, this type of set up before.

A stock sells down as the market becomes overly pessimistic.

The company surprises with decent numbers.

The portfolio managers and momentum traders pile back in. Don’t take that as a sure thing – just something to watch for.

We can wrestle over the valuation, like always. Zip isn’t cheap on conventional metrics.

I took a “first pass” look yesterday. It’s not a stock I know deeply. It’s a bit too big for my usual hunting ground.

Here’s some things to like about it:

• It’s posted strong growth in the USA – a huge market.
• Tariffs don’t affect it.
• Midcaps offer good liquidity, so appeal to a wide range of funds and buyers.
• It just posted an upgrade to earnings guidance. How many companies are doing that lately?
• It has nearly 5 million active customers. That’s a lot for the ASX, as most companies are hidebound by the size domestic market.
• They also have a $50 million buyback set to kick off from next week.

It’s not all hunky dory.

One worry is their bad debts. These look modest now, but if Trump’s shenanigans really do drive the US/world into recession, these could spike.

That said, the US economy isn’t going to nosedive today or tomorrow. Zip is one to watch.

2. One sector I think could be prospective for alpha in the next 12 months is shares related to the property market.

I’ll put a caveat on this: I thought this back in 2023 too, and it hasn’t worked so far.

Probably a timing issue.

Rate cuts are bang in sight for the market now. Here’s some ideas…

I mentioned REITs on this the other day. These are big and sturdy: that has a lot of appeal to investors right now.

In fact, the statistics say they should do well after all this volatility. Here’s Ophir with some data out of the US market:

“At a sector level, during a market correction the sectors that tend to perform better provide more stable, reliable and defensive revenue and earnings.

“Which ones are they? Typically, Real Estate, Health Care, Consumer Staples and Utilities.

“Each has, on average, outperformed the U.S. share market as a whole during the 15 market corrections that we have data for going back to 1990. Each also has an 80% or better ‘Hit Rate’ – that is, they have outperformed the market in at least 4 out of every 5 corrections.”

There’s also this…

3. AFG release their quarterly guide to mortgages

Australian Finance Group (AFG) is a great barometer for the mortgage market.

That’s because it’s a broker platform as well as a non bank lender. It has one of the best data sets for the $2 trillion residential lending market.

Every quarter they release some of this to the market. Here’s what they told us yesterday…

• Lodgement volume for AFG was their third highest on record.
• Brokers maintain huge market share.
• WA is the leading state for activity.
• AFG CEO says rate cuts are getting priced in and, he says, “…brokers are bracing for a further surge in activity as we head into the final quarter of FY25.”

AFG only trades on a P/E of 11. It’s the type of cyclical name that should catch a good bid over the next 12-18 months as this new housing upswing plays out.

4. Don’t forget to tune into this week’s Closing Bell…

Murray Dawes and I recorded this yesterday for his latest take on his “Big Wednesday” thesis playing out now. Click on the image to play it…

Best wishes,

Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

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